What You Learn on the Other Side

Business wisdom can strike while you're daydreaming over your latte at Starbucks or buying a shirt at Nordstrom -- or even when you're taking your Mercedes into the shop.

There are millions of books, classes, case studies, and, yes, even magazine articles that are supposed to teach CEOs everything about how to improve their businesses. Yet, for the truly astute CEO, business knowledge can come from even the most banal consumer experience. Here are three examples:

"About nine months ago I was sitting in Starbucks drinking my daily Grande 2% latte with half a shot of hazelnut syrup," says Murane. "There was a line out the door. Everyone behind the counter was smiling. And I was thinking, 'God, this company does something right.' Which got me to thinking about why I am loyal to Starbucks when it is so expensive and the coffee is not all that amazing."

Based on what he observed that day, Murane divided the concept of brand loyalty into three parts: the service experience, the brand bond, and product differentiation. Product differentiation was the first category to stand out. Ten years ago, who in the United States had heard of a Macchiato? As Murane watched patrons order their drinks, he took note of just how large the beverage lineup was -- and how customers took full advantage of the variety.

The service-experience component was pretty clear, too. "They know my drink and my name, and they differentiate themselves based on that," Murane says.

The brand bond was his emotional connection to Starbucks. What did the store do that made him (and others) love and respect it? Why did he go there to meet colleagues as frequently as 15 times a week? There were several answers: Starbucks shops were in good locations. They had seductive layouts decorated in warm earth tones. They had computer jacks and table space and clean surfaces for laptops. The decibel level was perfect, too. It was quiet enough to focus on work and to hear without straining, yet it was noisy enough to prevent eavesdropping and to render cell-phone usage an acceptable activity.

For Murane the brand-bond concept also worked on a personal level. A former brand manager for Clorox Co., Murane had always respected how Starbucks became a truly ubiquitous brand without spending much on advertising. (Can you recall ever seeing or hearing a Starbucks commercial?)

Once Murane was able to quantify why he and others were so loyal to Starbucks, he wondered how he could pass along his findings to clients so that they could instill in their customers the same vehement loyalty he felt for Starbucks.

Assisted by his four employees, Murane established sets of survey questions that allow consumers to rate brands on their service experience, brand bond, and product differentiation. Clients can then use that information to improve their customers' brand bond.

Consumer experience: Shopping at Nordstrom Lesson: How to empower staffers CEO: David Alexander Company: Elite Medical, a $17-million health-care-staffing company in Atlanta

"I am actually a Nordstrom credit-card holder. One of their employees just blew me away with how she sold it to me," says Alexander. "In most stores you go in and the cashier will say, 'This card will give you 10% off your purchase.' But this lady went into other benefits. She really insisted: 'You'd be making a big mistake, Mr. Alexander, if you don't get the card. You're buying a lot of merchandise today, and you'll be missing out on all the points.' And she answered three or four of my objections. Her level of training was amazing."

Alexander is in the business of supplying temporary staffing to hospitals. So what, you might ask, can he learn from a Goliath apparel retailer? A lot, as it turns out. For one thing, he says, "you see the top managers on the floor too, rolling up their sleeves. Management is in the trenches -- that's how they get that amazing effort and enthusiasm from the staff. And that's where I learned how I want to structure our company."

Alexander became so enamored of Nordstrom two years ago that he bought The Nordstrom Way, by Robert Spector, and uses it as his company's bible. There's a reason he fell so hard: during Elite's first four years (1992 to 1996), turnover was high. Alexander was traumatized. "Whenever someone came into my office and said, 'Can I talk to you?' -- I would sit there waiting for the resignation."

Nurses are often the first to say that they feel underappreciated. Alexander knew that boosting the morale of his internal staff would help them boost the morale of the nurses in Elite's stable, and that would help him reduce turnover. He looked to see how Nordstrom kept its rank and file happy. He discovered The Nordstrom Loop, the store's internal newsletter.

He was impressed by the content: stories about employees who'd been standout performers. Alexander wanted to replicate the idea of creating a forum where employees could learn about one another's best work. So he changed the format of the company's thrice-weekly meetings. Now one meeting each week begins with the sharing of stories: how one of his employees, for example, got out of bed at 3 a.m. to assist a nurse who was shut out of her hotel.

Elite Medical moved into larger offices a year ago. Borrowing from Alexander's Nordstrom experience, the company decided not to give VPs their own offices. Instead they got cubicles on the floor with Elite's 25 employees. Alexander also enlists his executives to do the company's direct mailings. "I could pay someone $8 an hour to do it," he says. "But if [my staffers] see me doing the direct mail, it flattens the organization out -- and that's a key to keeping turnover down and people happy."

All the changes that Alexander has made have minimized turnover among Elite's internal staff, and happy staffers are more likely to show care and appreciation for the company's network of nurses, he says. That, in turn, makes the nurses perform better. Better nurses have meant a better reputation for Elite, with a corresponding increase in revenues. After holding steady at $1 million for the company's first six years, Elite's revenues have doubled in each of the past four. Alexander doesn't hesitate to attribute the success to what he's learned from Nordstrom. No wonder he's so smitten.

Consumer experience: Taking a Mercedes-Benz in for service Lesson: How to improve customer service CEO: Said Hilal Company: Applied Medical Resources, a $50-million medical-device company in Rancho Santa Margarita, Calif.

"The Mercedes S series debuted in the American market and was trouble free," relates Hilal. "Yet after a year or so they realized that the air-conditioning was adequate for Europe but perhaps underpowered for America. So they took the initiative to retrofit all the first-year cars in the United States. And I can't really tell you that I noticed poor performance earlier or that I notice a big difference now. But the way they behaved toward me completely set my mind at rest. That was so much better than hearing through the grapevine that the air-conditioning was second-rate. And since then, I've paid more attention to that company, and it turns out they do this sort of thing a lot."

Hilal's company sells medical devices such as catheters and clamps to hospitals. The end users of his technology are a lot different from Mercedes-Benz's customers. But in each case, there's a level of trust that the company has to build with its customer base. So Applied Medical maintains open communication with its customers. After a sale, representatives make follow-up calls at least every quarter. Applied Medical uses the conversations to help with new-product development. "We ask our customers what they want to see in our future products -- what problems they have that we can help resolve," says Hilal. "We consistently remind ourselves to listen to what the customer needs, not what we need."

Hilal believes that the act of seeking customer feedback is what builds trust. His trust in Mercedes-Benz grew not because the company replaced his car's air-conditioning but because it approached him about doing so.